Will Your Startup Ever Scale Up? Here’s What You Need To Know

When will your startup scale up – if ever? And how?

According to the popular definition, about half of startups survive the first 5 years and only 1 in 200 become actual scaleups. Here’s what’s often misunderstood about the two ph(r)ases and what you can do as an ambitious founder or CEO to challenge the discouraging statistics.

The numbers presented above clearly show that major, exponential growth is not for everyone. And unfortunately, they don’t apply to Silicon Valley alone. They are global statistics on the number of companies that manage to take their business to the next level.

But don’t worry; they’re not stipulated in this article to make you lose your excitement or belief in your business model. Instead, they are meant to inspire you to take some rigorous and focused action if you are serious about skyrocketing your company’s growth.

Startup or scaleup? Common features and differences

Although often used to define a type of organization, the terms “startup” and “scaleup” actually refer to company phases or growth stages.

Startups and scaleups aim for the same amount of tremendous growth and impact but they are in different stages of their business life cycles.

When is your company a “startup”?

A startup can be defined as a new company with big growth plans and without geographic restrictions. It’s on a mission to find its repeatable scalable business model. They are still experimenting with things like segmentation, customer acquisition costs, and product features.

When people join your team at this phase, they decide to forgo stability for the promise of major growth and the excitement of making an immediate impact.

Where a startup is still in the early stages of getting their product in the right hands, securing funding, and getting their ducks in a row, a scale-up has already established their product in the market and is well on their way to accelerate their growth.

What is a scaleup?

Basically, you’re a startup until you prove your business model. You’re a scaleup when you already have a proven model and you’re scaling your revenue.

While the startup is still exploring its potential and discovering in what way it can best present its product or service to whom, the scaleup has already found that sweet spot.

In other words, the product-market fit has been perfected by scaleups. And when it comes to funding, scaleups can usually provide prospective investors with more validation than an MVP, a trustworthy team, and a great market opportunity alone.In its simplest definition, scale-ups are companies growing at 20% per year over a three-year period.

This means you can be a startup with a seemingly scalable business model and still never become a scaleup for lack of (customer) growth. Likewise, you can be a startup with revenue growth of over 20 percent YOY but still not have the scalable infrastructure, product or service that you are after.

When you envision the scaleup as a phase, you will also recognize scaling up can be a phase reached by any other (small) business or mid-market company as well.

But how do you move from one phase to the next? What are the main challenges in once you get there?

Main challenges in the scale-up phase

The moment you start scaling, two issues frequently arise. These are: (1) that most things were done manually up until now and (2) that everyone was doing everything.

Clear accountabilities for each team member in the startup phase are often lacking or insufficiently guarded. When you’re scaling, you have to be – or quickly become – very good at building leadership systems and automating procedures.

In the scale-up phase, the complexity of decision making changes. There are more and more stakeholders involved and the level of risk the company can afford declines. It’s important to make calculated decisions in any stage, but at this point, it’s make or break.

Companies will have to ramp up their IT systems and their physical and organizational structures to handle the increasing complexities. Therefore, as the company continues to grow, challenges move more towards leadership, infrastructure, and marketing.

A scaleup needs to have the right systems in place in all three areas. Fast-growing companies may also experience struggles related to cash flow, as rapid growth comes with rapidly increasing costs too. They need a solid plan to finance their new hires, outsourced tasks, IT systems, and extra physical space.

It can become difficult (if not impossible) to maintain quality control and to complete projects on time without a proper, scalable infrastructure. Without enough focus on scaling up processes, the company will find itself throwing people at problems, firefighting, and frustrating both employees and customers due to the increasing amount of drama created by their lack of structure.

[…]